Stimulus money should go to lowest bidders, economists say

Apr 20, 2009 BY ADAM GORLICK

A group of Stanford economists is pressing the government to streamline the process for doling out $7.2 billion in economic stimulus money slated for high-speed Internet development.

In a paper submitted this week to the National Telecommunications Information Agency and the Rural Utilities Service, the 13 Stanford experts on telecommunications, auctions and competition policy joined 58 other in urging the agencies to award broadband stimulus grants to the lowest bidder, rather than wading through stacks of proposals and trying to decide which are the best ones.

While they don’t necessarily see eye-to-eye on the $787 billion federal stimulus package, “we believe that it is important to implement mechanisms that make stimulus spending as efficient as possible,” the economists wrote. The broadband stimulus grants are intended to beef up the country’s Internet infrastructure, creating online access in currently underserved areas.

By relying on so-called procurement auctions, government officials will have easier and earlier control over how the money is used while guarding against overpayment for projects, the economists say.

“Our idea is that the government should set up criteria for the projects in advance of the auctions, rather than being subjective and establishing the criteria after people submit the proposals,” said Gregory Rosston, deputy director of the Stanford Institute for Economic Policy Research.

Otherwise, weighing proposals against each other would be arbitrary, take too long and lead to “picking the ones that have the best political influence,” Rosston said.

Having Internet providers bid on the grant money will foster a more competitive market, preventing companies from overcharging the government for services it may not want.

At the same time, “you have to make sure that the person who submits the lowest bid doesn’t do a shoddy job,” Rosston said.

To hold the bid winners to their promises, the economists suggest having them put money in an escrow account that will be returned only when their obligations are met. They also say that to ensure the grants are sparking new economic activity, the companies should be given some money to start the projects, and receive the balance when they finish.

While the broadband grants amount to a relatively small chunk of the entire stimulus package, Rosston said procurement auctions could also apply to the selection of businesses vying for earmarked for other utility and highway projects.

“At a minimum, the broadband stimulus funds present a golden opportunity to implement rigorous evaluation techniques, which will generate knowledge that can be applied to other current and future programs,” the economists wrote.

The other Stanford economists signing their names to the paper submitted this week are: Kenneth Arrow, Timothy Bresnahan, Jeremy Bulow, Peter DeMarzo, Robert Hall, Ward Hanson, Ilan Kremer, Paul Milgrom, Roger Noll, Bruce Owen, Yoav Shoham and Andrzej Skrzypacz.

Provided by Stanford University (news : web)

Explore further: Facial selection technique for ads can increase buyers by 15 percent

add to favorites email to friend print save as pdf

Related Stories

FCC gets going on national broadband plan

Apr 08, 2009

(AP) -- The Federal Communications Commission took the first step Wednesday in developing a comprehensive plan to give all Americans high-speed Internet access.

Tax rebates not a quick fix for the economy

Jan 22, 2009

(PhysOrg.com) -- If last year's tax rebates are any indication, one-time payments from the government are a weak economic stimulus, say economists at the University of Michigan.

Japan mulls high-tech economic stimulus

Mar 17, 2009

Japan may invest two billion dollars or more in new information and communication systems under an economic stimulus package with the aim of creating 400,000 jobs by 2011, an official said Tuesday.

Recommended for you

Sharing = Stealing: Busting a copyright myth

Apr 11, 2014

Consumers copy and share digital files. This has been blamed for a potentially catastrophic decline in certain markets. But why do consumers copy? And is it as economically harmful as often thought?

How widespread is tax evasion?

Apr 10, 2014

Tax evasion is widely assumed to be an eternal problem for governments—but how widespread is it? For the first time, a new study, co-authored by an MIT professor, has put a cost on a particular kind of tax evasion, known ...

China looks to science and technology to fuel its economy

Apr 10, 2014

Maintaining stability in the face of rapid change and growth, and proactively partaking in cooperative global ties in science and technology fields will be key in helping China become an innovation-based economy, according ...

User comments : 0

More news stories

Online reviews: When do negative opinions boost sales?

When purchasing items online, reading customer reviews is a convenient way to get a real-world account of other people's opinions of the product. According to a new study in the Journal of Consumer Research, negative review ...

ESO image: A study in scarlet

This new image from ESO's La Silla Observatory in Chile reveals a cloud of hydrogen called Gum 41. In the middle of this little-known nebula, brilliant hot young stars are giving off energetic radiation that ...

First direct observations of excitons in motion achieved

A quasiparticle called an exciton—responsible for the transfer of energy within devices such as solar cells, LEDs, and semiconductor circuits—has been understood theoretically for decades. But exciton movement within ...

Patent talk: Google sharpens contact lens vision

(Phys.org) —A report from Patent Bolt brings us one step closer to what Google may have in mind in developing smart contact lenses. According to the discussion Google is interested in the concept of contact ...

Warm US West, cold East: A 4,000-year pattern

Last winter's curvy jet stream pattern brought mild temperatures to western North America and harsh cold to the East. A University of Utah-led study shows that pattern became more pronounced 4,000 years ago, ...